UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number 0-27022
OPTICAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1237042
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5290 CONCOURSE DRIVE
ROANOKE, VIRGINIA 24019
(Address of principal executive offices, including zip code)
(540) 265-0690
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
----- ------ ----- ------
As of August 26, 1997, 38,675,416 shares of the registrant's Common
Stock, no par value, were outstanding. Of these outstanding shares, 36,000,000
shares were held by Robert Kopstein, Chairman of the Board, President and Chief
Executive Officer of the registrant.
OPTICAL CABLE CORPORATION
FORM 10-Q INDEX
NINE MONTHS ENDED JULY 31, 1997
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets - July 31, 1997 and
October 31, 1996..........................................2
Condensed Statements of Income - Three Months
and Nine Months Ended July 31, 1997 and 1996..............3
Condensed Statement of Changes in Stockholders'
Equity - Nine Months Ended July 31, 1997..................4
Condensed Statements of Cash Flows - Nine Months
Ended July 31, 1997 and 1996..............................5
Condensed Notes to Condensed Financial Statements........6-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION....................11-14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...........................15
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OPTICAL CABLE CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
JULY 31, OCTOBER 31,
Assets 1997 1996
----- ----
Current assets:
Cash and cash equivalents $ 335,554 $ 1,677,739
Trade accounts receivable, net of allowance for doubtful accounts of
$319,500 at July 31, 1997 and $300,000 at October 31, 1996 10,330,648 9,368,476
Other receivables 415,136 354,041
Due from employees 4,675 1,475
Inventories 12,131,240 10,261,437
Prepaid expenses 129,556 64,863
Deferred income taxes 168,349 155,304
----------- -----------
Total current assets 23,515,158 21,883,335
Other assets, net 55,243 67,996
Property and equipment, net 11,464,498 9,175,871
----------- -----------
Total assets $35,034,899 $31,127,202
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 921,000 $ 1,103,000
Accounts payable and accrued expenses 4,062,903 5,488,765
Accrued compensation and payroll taxes 604,464 676,725
Income taxes payable 421,646 237,926
----------- -----------
Total current liabilities 6,010,013 7,506,416
Deferred income taxes 43,760 49,227
----------- -----------
Total liabilities 6,053,773 7,555,643
----------- -----------
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000 shares; none
issued and outstanding -- --
Common stock; no par value, authorized 50,000,000 shares;
issued and outstanding 38,675,416 shares 18,594,116 18,594,116
Retained earnings 10,387,010 4,977,443
----------- -----------
Total stockholders' equity 28,981,126 23,571,559
Commitments and contingencies
----------- -----------
Total liabilities and stockholders' equity $35,034,899 $31,127,202
=========== ===========
See accompanying condensed notes to condensed financial statements.
2
OPTICAL CABLE CORPORATION
CONDENSED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
----------------------------- ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
Net sales $ 14,285,834 $ 10,862,064 $ 37,422,716 $ 31,388,496
Cost of goods sold 8,669,025 5,909,041 22,161,654 17,631,613
------------- ------------- ------------- --------------
Gross profit 5,616,809 4,953,023 15,261,062 13,756,883
Selling, general and administrative expenses 2,516,972 2,005,442 6,914,034 5,917,361
------------- ------------- ------------- --------------
Income from operations 3,099,837 2,947,581 8,347,028 7,839,522
Other income (expense):
Interest income 4,313 37,626 13,382 67,076
Interest expense (1,078) (1,622) (12,176) (5,115)
Other, net (227) (353) (5,713) 108,971
------------- ------------- ------------- --------------
Other income (expense), net 3,008 35,651 (4,507) 170,932
------------- ------------- ------------- --------------
Income before income tax expense 3,102,845 2,983,232 8,342,521 8,010,454
Income tax expense 1,086,162 1,124,409 2,932,954 1,308,349
------------- ------------- ------------- --------------
Net income $ 2,016,683 $ 1,858,823 $ 5,409,567 $ 6,702,105
============= ============= ============= ==============
Pro forma income data:
Net income before pro forma income tax
provision, as reported $ 6,702,105
Pro forma income tax provision 1,746,513
--------------
Pro forma net income $ 4,955,592
==============
Net income per share (pro forma for 1996) $ 0.052 0.046 $ 0.140 0.127
============= ============= ============= ==============
Weighted average shares outstanding
(pro forma for 1996) 38,675,416 40,475,416 38,675,416 38,989,074
============= ============= ============= ==============
See accompanying condensed notes to condensed financial statements.
3
OPTICAL CABLE CORPORATION
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
NINE MONTHS ENDED JULY 31, 1997
---------------------------------------------------------------------
Common Stock Total
-------------------------------- Retained Stockholders'
Shares Amount Earnings Equity
------ ------ -------- ------
Balances at October 31, 1996 38,675,416 $ 18,594,116 $ 4,977,443 $ 23,571,559
Net income - - 5,409,567 5,409,567
------------- -------------- ------------- --------------
Balances at July 31, 1997 38,675,416 $ 18,594,116 $ 10,387,010 $ 28,981,126
============= ============== ============= ==============
See accompanying condensed notes to condensed financial statements.
4
OPTICAL CABLE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
JULY 31,
------------------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 5,409,567 $ 6,702,105
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 532,200 361,525
Bad debt expense 4,868 41,431
Deferred income taxes (18,512) (135,457)
(Increase) decrease in:
Trade accounts receivable (967,040) (1,932,690)
Other receivables (61,095) (100,370)
Due from employees (3,200) 2,350
Inventories (1,869,803) (2,319,053)
Prepaid expenses (64,693) (684)
Other assets - 201,237
Increase (decrease) in:
Accounts payable and accrued expenses (806,478) (341,153)
Accrued compensation and payroll taxes (72,261) (94,905)
Income taxes payable 183,720 828,806
-------------- --------------
Net cash provided by operating activities 2,267,273 3,213,142
Cash flows from investing activities:
Purchase of property and equipment (3,427,458) (871,994)
-------------- --------------
Net cash used in investing activities (3,427,458) (871,994)
Cash flows from financing activities:
Net change in notes payable (182,000) 806,000
Proceeds from issuance of common stock, net of issuance costs - 5,549,214
Cash distributions to previously sole stockholder - (6,150,000)
-------------- --------------
Net cash provided by (used in) financing activities (182,000) 205,214
-------------- --------------
Net increase (decrease) in cash and cash equivalents (1,342,185) 2,546,362
Cash and cash equivalents at beginning of period 1,677,739 535,235
-------------- --------------
Cash and cash equivalents at end of period $ 335,554 $ 3,081,597
============== ==============
See accompanying condensed notes to condensed financial statements.
5
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTHS ENDED JULY 31, 1997
(Unaudited)
(1) GENERAL
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial reporting information and the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all material adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended July 31, 1997 are
not necessarily indicative of the results that may be expected for the
fiscal year ending October 31, 1997. The unaudited condensed financial
statements and condensed notes are presented as permitted by Form 10-Q
and do not contain certain information included in the Company's annual
financial statements and notes. For further information, refer to the
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended October 31, 1996.
(a) Pro Forma Net Income Per Share
For the three months and nine moths ended July 31, 1996, pro
forma net income per share was computed by dividing pro forma
net income by the pro forma weighted average number of common
shares outstanding during the period and by deeming to be
outstanding the number of shares (1,800,000) the Company would
have needed to issue at the initial public offering price per
share ($2.50) to pay a $1 million cash distribution to the
previously sole stockholder in December 1995 and a $3.5 million
cash distribution to the previously sole stockholder out of the
proceeds of the initial public offering.
(b) Net Income Per Share
For the three months and nine months ended July 31, 1997, net
income per share was computed by dividing net income by the
weighted average number of common shares outstanding during the
period. The calculation of weighted average shares outstanding
does not include the effect of common stock options since their
impact on the weighted average shares outstanding is less than
three percent.
(2) INVENTORIES
Inventories at July 31, 1997 and October 31, 1996 consist of the
following:
July 31, October 31,
1997 1996
---- ----
Finished goods $ 3,955,240 $ 2,465,659
Work in process 2,680,583 3,104,339
Raw materials 5,441,145 4,645,843
Production supplies 54,272 45,596
----------- ----------
$12,131,240 $10,261,437
=========== ==========
(Continued)
6
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(3) NOTES PAYABLE
On February 28, 1997, the Company and its bank executed a loan
commitment letter, which renewed its $5 million secured revolving line
of credit available for general corporate purposes and established a
$10 million secured line of credit to fund potential acquisitions,
mergers or joint ventures. The lines of credit bear interest at 1.50
percent above the monthly LIBOR rate and are equally and ratably
secured by the Company's accounts receivable, contract rights,
inventory, furniture and fixtures, machinery and equipment and general
intangibles. The lines of credit will expire on February 28, 1998,
unless renewed or extended.
(4) INCOME TAXES
Through March 31, 1996, the Company was not subject to federal and
state income taxes since it had elected to be taxed as an S
Corporation. In connection with the closing of the Company's initial
public offering, the Company terminated its status as an S Corporation
effective March 31, 1996 and became subject to federal and state income
taxes. Accordingly, the statement of income for the nine months ended
July 31, 1996 includes income taxes from April 1, 1996, and, for
informational purposes, a pro forma adjustment for income taxes which
would have been recorded if the Company had been subject to income
taxes for the entire period presented.
(5) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," on November 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Adoption of this Statement did
not have a material impact on the Company's financial position, results
of operations, or liquidity.
(6) STOCK OPTION PLAN
Prior to November 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On November 1, 1996, the
Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant.
(Continued)
7
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(6) (CONTINUED)
Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method
defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and will provide
the pro forma disclosure provisions of SFAS No. 123 in its annual
report for the fiscal year ending October 31, 1997.
Stock option activity during the nine months ended July 31, 1997 is as
follows:
Number of Weighted-Average
Shares Exercise Price
------ --------------
Balance at October 31, 1996 442,000 $ 2.50
Granted 254,000 11.125
Forfeited (10,000) 2.50
---------
Balance at July 31, 1997 686,000 $ 5.69
=========
At July 31, 1997, there were 3,314,000 additional shares available for
grant under the Plan.
The options vest 25 percent after two years, 50 percent after three
years, 75 percent after four years and 100 percent after five years.
(7) FUTURE ACCOUNTING CONSIDERATIONS
SFAS No. 128
------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share." SFAS No. 128 establishes standards for computing and presenting
earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. SFAS No. 128 simplifies the
standards for computing earnings per share previously found in APB
Opinion No. 15, "Earnings per Share," and makes them comparable to
international EPS standards. It replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual
presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires
a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the entity.
(Continued)
8
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(7) (CONTINUED)
SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier
application is not permitted. SFAS No. 128 requires restatement of all
prior-period EPS data presented. It is not anticipated that SFAS No.
128 will have any material effect on current or prior period EPS data
presented by the Company.
SFAS No. 130
------------
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general
purpose financial statements. SFAS No. 130 was issued to address
concerns over the practice of reporting elements of comprehensive
income directly in equity.
This Statement requires all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence
with the other financial statements. It does not require a specific
format for that financial statement but requires that an enterprise
display an amount representing total comprehensive income for the
period in that financial statement.
SFAS No. 130 is applicable to all entities that provide a full set of
financial statements. Enterprises that have no items of other
comprehensive income in any period presented are excluded from the
scope of this Statement.
SFAS No. 130 is effective for both interim and annual periods beginning
after December 15, 1997. Comparative financial statements provided for
earlier periods are required to be reclassified to reflect the
provisions of this Statement. It is not anticipated that SFAS No. 130
will have any material effect on current or prior period financial
statement displays presented by the Company.
SFAS No. 131
------------
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way public business enterprises are to report
information about operating segments in annual financial statements and
requires those enterprises to report selected information about
operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products
and services, geographic areas and major customers.
(Continued)
9
OPTICAL CABLE CORPORATION
CONDENSED NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(7) (CONTINUED)
SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated, unless it
is impracticable to do so. SFAS No. 131 need not be applied to interim
financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of
application shall be reported in financial statements for interim
periods in the second year of application. It is not anticipated that
SFAS No. 131 will have any material effect on current or prior period
segment disclosures presented by the Company.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1997 AND 1996
Net Sales
Net sales consists of gross sales of products, less discounts, refunds and
returns. Net sales increased 31.5 percent to $14.3 million in third quarter 1997
from $10.9 million for the same period in 1996. This increase was attributable
to the Company's continued effort to reach a broader customer base throughout
the United States and internationally with increased advertising, trade show
attendance, and direct sales presence in more states.
Gross Profit Margin
Cost of goods sold consists of the cost of materials, compensation costs and
overhead related to the Company's manufacturing operations. The Company's gross
profit margin (gross profit as a percentage of net sales) decreased to 39.3
percent in third quarter 1997 from 45.6 percent in third quarter 1996. During
third quarter 1997, sales from orders $50,000 or more approximated 21 percent
compared to 17 percent for third quarter 1996. Discounts on larger orders are
generally greater than for sales from orders less than $50,000. In addition,
during third quarter 1997, net sales to distributors approximated 51 percent
versus 49 percent for the same period in 1996. Discounts on sales to
distributors are generally greater than for sales to the Company's other
customer bases.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the compensation costs
(including sales commissions) for sales and marketing personnel, travel
expenses, customer support expenses, trade show expenses, advertising, the
compensation cost for administration, finance and general management personnel,
as well as legal and accounting fees. Selling, general and administrative
expenses as a percentage of net sales were 18.6 percent in third quarter 1997
compared to 18.5 percent in third quarter 1996. The lower percentage was
primarily the result of the fact that net sales for third quarter 1997 increased
at a faster rate than selling, general and administrative expenses compared to
third quarter 1996.
Income Before Income Tax Expense
Income before income tax expense increased 4.0 percent to $3.1 million for the
three months ended July 31, 1997 compared to $3.0 million for the three months
ended July 31, 1996. This was primarily due to increased sales volume offset by
the decrease in gross profit margin.
Income Taxes
The statement of income for the three months ended July 31, 1997 includes income
taxes, at an effective rate of 35.0 percent, and, the statement of income for
the three months ended July 31, 1996 includes income taxes, at an effective tax
rate of 37.7 percent. The lower effective tax rate in third quarter 1997 is due
primarily to the benefit of the Company's foreign sales corporation.
Net Income
Net income for third quarter 1997 was $2.0 million compared to $1.9 million for
third quarter 1996. Net income increased due to the increase in income before
income tax expense and to the decrease in the effective tax rate.
(Continued)
11
NINE MONTHS ENDED JULY 31, 1997 AND 1996
Net Sales
Net sales consists of gross sales of products, less discounts, refunds and
returns. Net sales increased 19.2 percent to $37.4 million for the nine months
ended July 31, 1997 from $31.4 million for the same period in 1996. This
increase was attributable to the Company's continued effort to reach a broader
customer base throughout the United States and internationally with increased
advertising, trade show attendance, and direct sales presence in more states.
This effort resulted in greater sales in all market segments and product types.
Gross Profit Margin
Cost of goods sold consists of the cost of materials, compensation costs and
overhead related to the Company's manufacturing operations. The Company's gross
profit margin (gross profit as a percentage of net sales) decreased to 40.8
percent for the nine months ended July 31, 1997 from 43.8 percent for the nine
months ended July 31, 1996. This decrease was due to the Company's product mix
sold and the ratio of net sales attributable to the Company's distributors
during the period. During the nine months ended July 31, 1997, sales from orders
$50,000 or more approximated 21 percent compared to 18 percent for the nine
months ended July 31, 1996. Discounts on large orders are generally greater than
for sales from orders less than $50,000. In addition, for the nine months ended
July 31, 1997, net sales to distributors approximated 57 percent versus 47
percent for the same period in 1996. Discounts on sales to distributors are
generally greater than for sales to the Company's other customer base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of the compensation costs
(including sales commissions) for sales and marketing personnel, travel
expenses, customer support expenses, trade show expenses, advertising, the
compensation cost for administration, finance and general management personnel,
as well as legal and accounting fees. Selling, general and administrative
expenses as a percentage of net sales were 18.5 percent for the nine months
ended July 31, 1997 compared to 18.9 percent for the nine months ended July 31,
1996. This lower percentage was primarily the result of the fact that net sales
for the nine months ended July 31, 1997 increased at a faster rate than selling,
general and administrative expenses compared to the nine months ended July 31,
1996. The ratio of selling, general and administrative expenses as a percentage
of net sales was also impacted due to incurring approximately $288,000 of
shareholder related expenses during the nine months ended July 31, 1997, such as
printing and distribution costs for the annual report on Form 10-K and the proxy
statement, and costs for the annual meeting of shareholders, compared to
approximately $65,000 expensed for the nine months ended July 31, 1996.
Income Before Income Tax Expense
Income before income tax expense increased 4.1 percent to $8.3 million for the
nine months ended July 31, 1997 compared to $8.0 million for the nine months
ended July 31, 1996. This was primarily due to increased sales volume offset by
the decrease in gross profit margin.
(Continued)
12
Income Taxes
Through March 31, 1996, the Company was not subject to federal and state income
taxes since it had elected to be taxed as an S Corporation. In connection with
the Company's initial public offering, the Company terminated its status as an S
Corporation effective March 31, 1996 and became subject to federal and state
income taxes. Accordingly, the statement of income for the nine months ended
July 31, 1997 includes income taxes, at an effective tax rate of 35.2 percent,
and the statement of income for the nine months ended July 31, 1996 includes
income taxes from April 1, 1996, and, for informational purposes, a pro forma
adjustment for income taxes, at an effective tax rate of 38.1 percent, which
would have been recorded if the Company had been subject to income taxes for the
entire period presented. The lower effective tax rate for the nine months ended
July 31, 1997 is due primarily to the benefit of the Company's foreign sales
corporation.
Net Income
Net income for the nine months ended July 31, 1997 was $5.4 million compared to
$6.7 million for the nine months ended July 31, 1996. Despite an increase in
income before income tax expense, net income decreased due to income tax expense
of $2.9 million for the nine months ended July 31, 1997 compared to $1.3 million
for the same period in 1996 as a result of the Company's termination of its S
Corporation status effective March 31, 1996.
Net income for the nine months ended July 31, 1997 increased $454,000, or 9.2
percent over pro forma net income for the nine months ended July 31, 1996. This
increase resulted from the increase in income before income tax expense of
$332,000, and by the $122,000 decrease in income tax expense for the nine months
ended July 31, 1997 from pro forma income tax provision for the same period in
1996.
FINANCIAL CONDITION
Total assets at July 31, 1997 were $35.0 million, an increase of $3.9 million,
or 12.6 percent over October 31, 1996. This increase was primarily due to an
increase of $962,000 in trade accounts receivable resulting from the increased
sales volume during the quarter as compared to fourth quarter 1996, an increase
of $1.9 million in inventories, and a $2.3 million increase in property and
equipment, net, due to the Company's expansion of its headquarters facilities.
The expansion was funded primarily through the $1.3 million decrease in cash and
cash equivalents.
Total stockholders' equity at July 31, 1997 increased $5.4 million, or 22.9
percent from October 31, 1996 with net income retained accounting for the
increase.
(Continued)
13
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to (i) fund working capital
requirements, (ii) repay indebtedness, (iii) purchase property and equipment for
expansion and (iv) fund distributions to its previously sole stockholder
primarily to satisfy his tax liabilities resulting from S Corporation status.
The Company's primary sources of financing have been cash from operations, bank
borrowings and proceeds from the initial public offering of the Company's common
stock. The Company believes that its cash flow from operations and available
lines of credit will be adequate to fund its operations for at least the next
twelve months.
On February 28, 1997, the Company and its bank executed a loan commitment
letter, which renewed its $5 million secured revolving line of credit available
for general corporate purposes and established a $10 million secured line of
credit to fund potential acquisitions, mergers or joint ventures. The lines of
credit are equally and ratably secured by the Company's accounts receivable,
contract rights, inventory, furniture and fixtures, machinery and equipment and
general intangibles. The lines of credit will expire on February 28, 1998,
unless renewed or extended. As of the date hereof, the Company has no additional
material sources of financing.
Cash flows from operations were approximately $2.3 million and $3.2 million for
the nine months ended July 31, 1997 and 1996, respectively. For the nine months
ended July 31, 1997, cash flows from operations were primarily provided by
operating income, offset by an increase in trade accounts receivable of
$967,000, an increase in inventory of $1.9 million, a decrease in accounts
payable and accrued expenses of $806,000 and income taxes paid of $2.8 million.
Cash flows from operations for the nine months ended July 31, 1996 were
primarily provided by operating income, offset by an increase in trade accounts
receivable of $1.9 million, an increase in inventory of $2.3 million and income
taxes paid of $615,000.
Net cash used in investing activities was for expenditures related to facilities
and equipment and was $3.4 million and $872,000 for the nine months ended July
31, 1997 and 1996, respectively. The Company's expansion of its headquarters
facilities is complete, and as of July 31, 1997, there were no material
commitments for additional capital expenditures.
Net cash provided by (used in) financing activities was $(182,000) and $205,000
for the nine months ended July 31, 1997 and 1996, respectively. The net cash
used in financing activities for the nine months ended July 31, 1997 consisted
of repayment of debt outstanding under the Company's line of credit of $182,000
compared to an increase of $806,000 for the nine months ended July 31, 1996. The
net cash provided by financing activities for the nine months ended July 31,
1996 also included net proceeds from the issuance of common stock of $5.6
million, offset by $6.2 million in cash distributions to the Company's
previously sole stockholder for payment of his income taxes with respect to the
taxable income of the Company prior to the termination of the Company's S
Corporation status.
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K for the nine
months ended July 31, 1997.
(27) Financial Data Schedule.
(b) Reports on Form 8-K filed during the three months ended July
31, 1997.
None.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OPTICAL CABLE CORPORATION
(Registrant)
Date: August 26, 1997 /s/Robert Kopstein
----------------------------------------
Robert Kopstein
Chairman of the Board, President and
Chief Executive Officer
Date: August 26, 1997 /s/Kenneth W. Harber
----------------------------------------
Kenneth W. Harber
Vice President of Finance, Treasurer
and Secretary
(principal financial and accounting
officer)
5
1,000
U.S. DOLLAR
9-MOS
OCT-31-1997
NOV-01-1996
JUL-31-1997
1
336
0
10,650
319
12,131
23,515
14,963
3,499
35,035
6,010
0
0
0
18,594
10,387
35,035
37,423
37,436
22,162
29,076
6
5
12
8,343
2,933
5,410
0
0
0
5,410
0.140
0.140
